Most advisers believe that the Best Interest statute to be introduced with Future of Financial Advice reforms will have little to no impact on the practice of churning.
Responding to our poll which asked:
Will the introduction of ‘Client Best Interest’ legislation have a significant impact on reducing churning?
75% of poll respondents dismissed this notion. 16% of advisers do believe Best Interest will have an impact on churning, while 9% are undecided.
A number of comments we have received from advisers suggest the answer to reducing churning lies with the life companies:
“… if the insurers can get enough momentum going to ‘stop churning’ or have it seen as [an] anti-client element, which it isn’t in the bulk of the situations, then they have a base on which to push reforms.”
“The insurer is responsible for the whole matter of churning.”
“… the answer to reducing churning lies very much with the insurers choosing not to accept applications … from the small number of advisers identified as operating in that manner. That in turn would then help the majority of advisers to continue doing what is best for their clients without being [labelled] as churners.”
One adviser raised the issue of how advisers should be paid for replacement business:
“Churning” will only cease when, and if, all commissions are paid on a level basis.”
Other comments from advisers defend the practice of facilitating replacement business because in the vast majority of cases it is indeed in the best interest of the client to do so. We support this point of view and have raised the question of churning only in relation to those replacement policies where the upgrade is not justifiable or in the client’s best interests.
We will return to the issue of churning in future articles and polls.
The practice of churning life risk applications can be called churning if it is done annually. So we know what churning is, but not sure about how frequent it happens. I beleive that reviewing policies every 4 years is responsible and necessary.
The practice of blatant, short term “Churning” has been a long standing blight on the Australian Life Insurance Industry which thankfully, is isolated to only a few these days.
Apart from not acting in the best interest of clients and driving up costs, it erodes credibility in the Advice sector at a time when we are under more pressure than ever to prove our relevance against the No Advice model.
In my view, any move to eliminate such practices whether real or perceived, is a move in the right direction.
Michael You comments intrique me .So if a client has a policy and upon a review it is found another company even after say 12 months can offer a yearly saving of around 900.00 what would you propose an adviser do in the “clients best interest” ?
When you cut off a advisors income {for or from what area is irrelevant} They will look to replace it!
Not necesarily from a “churning” point but a transfer of servicing rights is perhaps one option alone?.
How does the risk advisor deal with the “Financial Advisor”?? requesting the client move their insurances over to them as they are in a better position to guage the clients position? They may have never even thought of risk cover until now?
It may seem “petty” but move enough and it will improve a lifestye!!.
I truely trust there are enough ethical people in our industry that know how to prospect and advise accordingly
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